Sunday, February 05, 2017

U.S. requires crash federal telecom infrastructure program

Like other forms of infrastructure that were largely built out in the 20th century – such as transportation, energy, water and sewage – broadband is a foundation for economic activity across many sectors. But, unlike other potential infrastructure priorities, the public benefits of broadband could grow exponentially in the coming decades, as the nation is just beginning to realize the potential innovation and productivity gains from combining high bandwidth, low-latency connectivity with massive sensor, computing, and storage capabilities.

Unlike most other types of infrastructure, the nation’s digital infrastructure is largely corporate owned and generates revenues from paying subscribers. However, the private carriers who invest in broadband capex do not, in general, capture the full benefits of those investments (e.g., the positive externalities of the internet economy and the multipliers from increasing innovation and efficiency in adjacent sectors), so their investment levels are lower and slower than would be optimal for the country. (Emphasis added). The public-policy challenge, therefore, is to increase largely private capital flows to levels consistent with the potential public benefits of abundant, ubiquitous broadband without crowding out existing private sector investment.

The above is excerpted from a white paper by Paul de Sa, who formerly headed the U.S. Federal Communications Commission's Office of Strategic Planning and Policy Analysis. The paper was published on the U.S. Federal Communications Commission website last month. de Sa's point on the larger benefits of ubiquitous modern telecommunications infrastructure and its economic stimulus and multiplier effect mirrors my own, discussed in my recent eBook, Service Unavailable: America's Telecommunications Infrastructure Crisis.

I fully agree with de Sa's assessment that relying on the current dominant model of privately owned infrastructure where Internet Service Providers own the connections to customer premises as well as the services offered over them cannot support rapid and robust infrastructure construction to catch the nation up to where it needs to accommodate exploding bandwidth demand today and in the future. It's naturally limited by investment risk that comes with selling and servicing monthly subscriptions one customer premise at a time that constrains access to the needed many billions of investment capital and is prone to market failure. Until the United States explicitly recognizes the limitations of this model and treats telecommunications as the national infrastructure asset that it is and launches a crash publicly-financed telecom infrastructure initiative, the nation will continue to rapidly fall further behind as the 21st century advances.

As a footnote, de Sa's paper was retracted this week by his acting replacement, Wayne A. Leighton. (h/t to Steve Blum's blog).

Friday, February 03, 2017

FCC’s O’Reilly defends unacceptable status quo in U.S. telecom infrastructure

As federal policymakers consider addressing America’s telecommunications infrastructure deficit as part of a broad national infrastructure modernization plan, Federal Communications Commissioner Michael O’Reilly has written a blog post clearly intended to lower expectations and preserve an unacceptable status quo. It comes at a time when the United States by 2010 should have had modern, fiber optic-based telecommunications infrastructure deployed serving every home, small businesses and public institution instead of the legacy metallic telephone and cable company infrastructure he wants to preserve. Not to mention the national embarrassment of third world satellite Internet and dialup serving too many American homes where landline telecom connections – metallic or fiber – are nonexistent.

Instead of a robust federal telecommunications infrastructure program, O’Reilly seeks to protect the incumbent telephone and cable companies by preserving their emphasis on “broadband speeds” and the related and increasingly outdated, tail chasing debate over how much speed is sufficient. That fits nicely with the legacy incumbents’ outdated metal cable connections to premises since those lack the capacity of fiber to serve burgeoning bandwidth demand. In his points about geography and population density, O’Reilly also lends support to incumbents’ redlining market practices based on premise density in violation of the FCC’s 2015 Open Internet rulemaking making Internet a universally available common carrier telecommunications utility. That speed-based versus fiber to the premise (FTTP) metric comports with the FCC’s weak subsidy program that funds incumbents’ deployment of obsolete infrastructure on a par with circa 2005 DSL.

In sum, O’Reilly’s position is all about incrementalism and buying more time for these legacy incumbent providers. Public policymakers have already allowed them to buy a quarter century of delay as American has fallen ever further behind in the 21st century, when modern telecommunications infrastructure is as critical as roads and highway were in the previous century. It’s time for that to end.

Finally, O’Reilly -- like former FCC Chairman Tom Wheeler before him --miscasts telecommunications infrastructure as a competitive market. If it were, there would be lots of service providers to choose from and sufficient capital to finance their ventures. The fact that there are not reflects simple microeconomics. High cost endeavors like infrastructure erect natural barriers to new providers. In telecommunications infrastructure, incumbents also exert a chilling effect with their natural monopolies since new providers are reluctant to take on the risk of overbuilding them – a primary reason for Google Fiber’s recent retrenchment.

Saturday, January 28, 2017

Neither investor-owned ISPs nor "muni broadband" can meet America's urgent telecom infrastructure modernization need

How Broadband Populists Are Pushing for Government-Run Internet One Step at a Time | ITIF: To most observers of U.S. broadband policy, the regular and increasingly heated debates in this area appear to be about an evolving set of discrete issues: net neutrality, broadband privacy, set-top box competition, usage-based pricing, mergers, municipal broadband, international rankings, and so on. As each issue emerges, the factions take their positions—companies fighting for their firms’ advantage, “public interest” groups working for more regulation, free market advocates working for less, and some moderate academics and think tanks taking more nuanced and varied positions.

But at a higher level, these debates are about more than the specific issue at hand; they are subcomponents of a broader debate about the kind of broadband system America should have. One side wants to remain on the path that has brought America to where it is today: a lightly regulated industry made up of competing private companies relying on a variety of technologies. Another side, made up of mostly public interest groups and some liberal academics, rejects this, advocating instead for a heavily regulated, utility-like industry at minimum and ideally a government-owned system made up of municipal networks. The Information Technology and Innovation Foundation (ITIF) firmly believes the former model—lightly regulated competition—is the superior one. But if we are to get broadband policy right going forward, it’s this broader strategic issue we need to identify and debate, not just narrow tactical matters.

Broadband networks are a critical part of America’s digital technology system and, as such, the issue of how to continue to drive investment and innovation in these networks is worthy of robust and sustained debate. But the broadband policy debate should be transparent about what it really involves: Is America better off with an ISP industry that is structured the way the vast majority of the U.S. economy is structured (private-sector firms competing to provide the best product or service at a competitive price, with the role of government to limit abuse and support gaps where private-sector competition does not respond), or do we want to transform this largely successful industry model into either a regulated utility monopoly model or government-owned networks? As we ponder this question, policymakers need to understand what the debate is fundamentally about and what is at stake as broadband populists push for each one of their thousand cuts.

Actually, neither leaving telecommunications infrastructure fully in the hands of the private sector nor relying on local "municipal broadband" builds will bring the United States modern, fiber optic telecommunications infrastructure rapidly enough to meet the ever growing bandwidth demand of Internet protocol-based services. The former because of sell side market failure due to slow and uncertain return on investment inherent in its customer premise subscription-based business model. The latter because state and local governments lack the capital and debt capacity to finance publicly owned telecom infrastructure with so many competing needs for aging infrastructure such as roads, schools and sewer and water systems as well as enormous public pension obligations.

Only the federal government has the resources and policy power to meet this critical infrastructure need of the 21st century as I posit in my 2015 eBook, Service Unavailable: America's Telecommunications Infrastructure Crisis. Telecommunications infrastructure like the highway system is fundamentally interstate and not municipal, connecting states to each other and the nation to the world. It's too important to be left to either the private sector alone or state and local governments that lack the resources to do the job.

Tuesday, January 24, 2017

Senate Democrats to propose $1 trillion infrastructure plan

News from The Associated Press: A proposal by two of Trump's financial advisers circulated just after the election calls for using $137 billion in tax credits to generate $1 trillion in private investment in infrastructure projects over 10 years. But investors are typically interested only in projects that have a revenue stream like tolls to produce a profit. Charging tolls for roads and bridges is often unpopular. A recent Washington Post poll found that 66 percent of the public opposes granting tax credits to investors who put their money into transportation projects in exchange for the right to charge tolls. The American Association of State Highway and Transportation Officials and transportation industry lobbying groups want a hike in direct federal spending instead of tax credits. What is needed most, they say, is money to address the growing backlog of maintenance and repair projects, most of which are unsuitable for tolling.

This also applies to America's aging and obsolete telecommunications infrastructure. It should have been modernized with fiber optic technology all the way to customer premises starting a quarter of a century ago. Instead today, the nation remains on outmoded metal wire infrastructure designed for the pre-Internet days of telephone and cable TV service.

The financial points of this article also apply. Just as it won't for roads and highways, a for-profit business model isn't going to generate the low hundreds of billions of dollars needed to build the telecom infrastructure to accommodate the ever increasing demand for Internet protocol-driven bandwidth. There simply isn't enough return on investment given the enormous capital expenditure requirements. Ditto tax incentives.

Americans also understandably dislike a toll-based scheme that subjects them to the tender mercies of vertically integrated Internet Service Providers (ISPs) -- who because they own both the pipe that brings telecom services to customer premises as well as the services delivered over it -- enjoy hugely disproportionate market power. Just ask anyone who received a notice their monthly bill would be going up this year. Telecom infrastructure should be in the public realm and treated -- and funded-- as a public good.

Sunday, January 15, 2017

Why aggressive federal intiative needed to modernize inadequate U.S. telecom infrastructure

Virginia “Broadband Deployment Act” would kill municipal broadband deployment | Ars Technica: Virginia lawmakers are considering a bill called the "Virginia Broadband Deployment Act," but instead of resulting in more broadband deployment, the legislation would make it more difficult for municipalities to offer Internet service.

The Virginia House of Delegates legislation proposed this week by Republican lawmaker Kathy Byron (full text) would prohibit municipal broadband deployments except in very limited circumstances. Among other things, a locality wouldn't be allowed to offer Internet service if an existing network already provides 10Mbps download and 1Mbps upload speeds to 90 percent of potential customers. That speed threshold is low enough that it can be met by old DSL lines in areas that haven't received more modern cable and fiber networks.

This is a big part of the justification for an aggressive federal telecom infrastructure initiative to build and publicly own fiber optic connections to nearly every American home, business and institutions. While many have placed hope in state and local government "muni broadband" efforts, they won't scale and rapidly enough to address the nation's current and future telecom needs. The nation now faces an infrastructure crisis, getting further and further behind the demand curve as time goes on and the need for robust connectivity grows.

There are two reasons why these local efforts fall short. First and most importantly, existing state and local governments lack the many billions of dollars and debt capacity needed to finance the job. They're already strapped by deferred infrastructure maintenance such as for highways, roads, government buildings, and water and sewerage systems. Not to mention the yawning economic black hole of underfunded public employee pension obligations that sucks up state and local funds. In a similar vein, we don't read accounts of new special districts being formed to build and operate telecom infrastructure, with the locals signing on to tax themselves to pay for it.

The second is the legacy incumbent telephone and cable companies call the shots on telecom infrastructure and will do -- as the above story reports -- whatever it takes to keep control, even if it means keeping in place obsolete infrastructure and impeding technological progress with minimalist incrementalism. State and local governments are simply outgunned by boatloads of campaign cash and armies of lobbyists and propagandists intent on keeping the calendar set at 1999 in order not to disrupt their capital expenditure averse business models. Nor is there any real private sector threat. For example, Google Fiber got its ass kicked and then publicly mocked by AT&T when it ventured into the telecom infrastructure business to connect homes with fiber and forming public-private partnerships with local governments.

As I wrote in my 2015 eBook, Service Unavailable: America’s Telecommunications Infrastructure Crisis, the United States requires an aggressive federal initiative to modernize the nation's aging and hugely inadequate telecom infrastructure so that it serves all Americans and not just some. Only the federal government has the authority and resources to make that happen and is justified in doing so given the essentially interstate nature of telecommunications.

Wednesday, January 11, 2017

US Telecom head fundamentally misstates key obstacle to telecom infrastructure

The Next National Infrastructure Push Must Be Powered by Broadband - Morning Consult: Clarity. Broadband companies have invested more in America’s infrastructure over the last two decades than any other sector of our economy – $1.5 trillion and counting. Yet these same companies in recent years have suffered a case of Washington whiplash. On one hand, heady (and wholly accurate) talk about broadband’s importance to all citizens. On the other, increasingly regressive policy decisions that undermine that potential and are widely credited with 2015’s decline in capital investment in U.S. broadband networks. We need to reverse this troubling trend by establishing policies that encourage investment in new and better broadband.
This opinion from Jonathan Spalter,  president and CEO of the trade association USTelecom, is remarkable in that it fundamentally misstates what is a business problem as a public policy problem for telecommunications companies. The biggest obstacle facing the industry when it comes to investing in telecommunications infrastructure is its own business model. It's out of sync with the long term return on capital that comes with high cost telecom infrastructure, seeking lower risk short term gains. That's not public policy. That's just plain microeconomics.